Key Employment Considerations for Government Contractors Navigating a US Government Shutdown

This article is part of an ongoing legal series designed to provide insight and practical guidance on current and emerging workplace compliance issues. These insights shared by lawyers are based on their interpretation of existing regulations and proposed changes, and intended for informational purposes, not to be regarded as legal advice.

When Washington shuts down, government employees and contractors face multiple systemic issues and consequences. Federal offices sit empty, contracts get snared in limbo, and government contractors face half-finished projects and uncertainty about employee payrolls. Not surprisingly, shutdowns also stir up numerous questions: How long will furloughs last? Who pays for out-of-work employees? And most immediately, exactly who is affected by a government shutdown and how? 

This article addresses these common concerns, including who the shutdown affects, how it will impact them, and what remains enforceable. For government contractors, it also offers helpful steps to take while waiting for Congress to turn the lights back on. 

Who Is Affected by Government Shutdown Directives and How? 

A government shutdown essentially shuts down all non-essential federal functions, leading to a slippery slope of closures and hassles. Employees working on appropriations-funded projects may face contractor layoffs or end up in a temporary, unpaid status. Additionally, disruptions can cause a domino effect, upending subcontractors who depend on contractors for their livelihood. In short, losing federal funding affects everyone in the chain. Let’s take a closer look.

Government Contractors and Operational Disruptions 

When federal agencies are forced to hit pause, the contracting workforce suffers. For example:

• Suspended projects—contracts funded by discretionary appropriations often come to a screeching standstill until Washington reopens;
• Payment delays—contractors can’t process invoices, and products involved in development processes can sit in limbo;
• Lost direction—because oversight, auditing, and compliance personnel also bear the brunt, approvals and guidance may dwindle; and
• Operational divides—while defense, health, and safety programs typically remain open, most associated activities grind to a halt. 

Even though contractors still have contractual obligations, these shutdown losses result in disruption to program timelines, strained payrolls, and hampered decision-making overall.

Steering Through a Government Furlough

When agencies stop operating, contractors often end up struggling with the consequences of a government furlough. Problems to be aware of include: 

• Temporary non-paid status. Furloughed workers remain on payroll but cannot work or collect wages until Congress restores funding. Additionally, while the 2019 Government Employee Fair Treatment Act (GEFTA) requires that federal employees receive back pay once a shutdown ends, there are some indications that this may not happen after this time around.
• Ripple effects. Furloughs delay inspections, payments, and approvals, resulting in timeline and planning disruptions.
• Uncertainty. Furloughed employees face weeks of ambiguity, while contractors struggle with the liminal space, working to balance workplace morale, scheduling, and compliance expectations.

Ultimately, even when furloughs are temporary, employers must still pay attention to issues like benefits and documentation and prepare for the possibility that employees may not receive federally mandated backpay.

Preparing for Government Contractor Layoffs

Sometimes, a shutdown drags on longer than expected. When that happens, temporary government contractor layoffs can turn into actual job cuts. Employers should prepare for:

• Trigger events. Gaps in appropriations or canceled contracts can lead to unavoidable staff reductions.
• Legal obligations. Large-scale layoffs may trigger rules and regulations like the Worker Adjustment and Retraining Notification Act (WARN).
• Documentation. For each termination, employers should record the cause, whether it be frozen deliverables, a loss of funding, or a lapse in federal authorization.
• A chain reaction. Subcontractors who depend on contractor compensation can also face job cuts if the prime contractor can’t pay. Those cuts can lead to other cuts affecting multiple tiers of teams and vendors.

Rebuilding after a shutdown can take months. Worse, in some cases, a contractor may never recover. That’s why planning for extended disruptions is as important as managing the first few weeks of a shutdown.

How Does a Shutdown Affect Compliance Obligations?

For government contractors, understanding how a shutdown may affect their obligations can prevent employment problems after the government reopens. Just because the government may not be actively verifying compliance does not mean your responsibilities have changed.

Contractors Still Have E-Verify Obligations 

The shutdown temporarily took E-Verify offline, but it is now back up and running. Employers must submit E-Verify cases for anyone hired during the shutdown by Tuesday, October 14. The dates must be pushed for employees who received a mismatch and notified you of their internet to contest it. For more information on revised deadlines, visit the E-Verify website.

EEOC Timelines Still Matter

A government shutdown does not pause an employer’s obligations to follow Title VII and other federal rules. When the EEOC pauses operations, investigations, mediations, and hearings take a hiatus. However, employees can still submit a pre-charge inquiry through the EEOC online portal. The EEOC will only contact charge filers during the shutdown if it appears that the charge filing deadline will expire within 14 days. Moreover, employers still have a duty to preserve evidence and documentation and to respond to employee charges and complaints once Congress lifts the shutdown.

With the recent confirmation of Brittany Panuccio as an EEOC Commissioner, that EEOC will have a full quorum and can issue official guidance. 

OFCCP Fate Unknown

The fate of the OFCCP is still unknown and will not be decided until the budget is approved and the government reopens. Enforcement responsibility for Section 503 may move to the EEOC and VEVRAA enforcement could move under Veteran's Employment and Training Services (VETS). OutSolve is monitoring the shutdown and will update you when new information becomes available. 

DOL Enforcement May Be On Hold, but Contractor Liability Isn’t

During a shutdown, the Department of Labor (DOL) suspends activities like Wage and Hour Division audits. However, employers are still expected to actively address imminent threats to health, safety, or property. Payroll, classification, and recordkeeping obligations should also continue uninterrupted.

In all instances, compliance violations are still actionable. In other words, employers will be held accountable for non-compliance during the shutdown once normal operations resume.

How Do I Stay Ahead of Any Fallout?

To reduce liability during and after a shutdown, government contractors should:

• Document all actions, including furloughs, layoffs, benefits decisions, and hour reductions;
• Maintain compliance records for E-Verify, EEOC, OFCCP, and DOL obligations throughout the shutdown;
• Identify all at-risk contracts and roles early on to help design modified staffing plans, budget adjustments, and notice requirements;
• Monitor agency communications daily to keep abreast of restarts, backlogs, and renewed enforcement activity; and
• Prepare for a quick reopening so operations, audits, and deliverables can resume without delay.

Finally, while a shutdown is temporary, it’s important to remember that preparation before and during the pause determines whether your recovery afterwards will be swift or costly.

For additional guidance, please contact OutSolve today.